Westpac Banking Corporation reports steady lending and deposit growth alongside stable margins despite geopolitical headwinds, while transaction costs from its RAMS mortgage portfolio sale weigh on first-half profits.
- Lending and deposits grow 4% and 3% respectively in 1H26
- Core net interest margin remains stable excluding rate rise timing effects
- Credit provisions rise due to energy sector risks and geopolitical uncertainty
- RAMS mortgage portfolio sale on track, with $75 million transaction cost impacting profits
- Asset quality improves and CET1 capital ratio strengthens in 2Q26
Steady Growth Amid Rising Global Uncertainty
Westpac Banking Corporation (ASX:WBC) is holding firm in a volatile global environment, reporting solid momentum in lending and deposits for the first half of 2026. Lending expanded by 4% while deposits grew 3%, reflecting resilience in customer demand despite the ripple effects of the Middle East conflict and energy market shocks.
Core net interest margin (NIM), a key profitability metric, remained stable in the second quarter when adjusted for the timing impact of recent rate rises. This stability is notable given the interest rate volatility that trimmed Treasury and Markets NIM contribution from 15 basis points in the first quarter to 7 basis points in the second.
Rising Credit Provisions Reflect Economic Caution
Westpac has revised its economic outlook to account for the inflationary pressures and slower growth anticipated from ongoing geopolitical tensions. This has led to an increase in credit provisions, particularly with a new portfolio overlay targeting energy-intensive sectors vulnerable to the current supply shock.
The bank expects the ratio of credit impairment charges to risk-weighted assets (CAP to credit RWA) to rise to approximately 129 basis points, with a credit impairment charge forecast at 10 basis points of average gross loans. Despite these cautious moves, asset quality metrics improved during the half, supported by ongoing productivity initiatives that helped reduce expenses by 2%.
RAMS Mortgage Portfolio Sale Advances with Profit Impact
The long-anticipated sale of Westpac’s RAMS mortgage portfolio is progressing on schedule, with completion expected in the second half of 2026. The portfolio was transferred from the Consumer segment to Group Businesses in the first half, a change that does not affect overall net profit but required restatement of prior periods for comparability.
Transaction costs related to the RAMS sale have already hit the books, reducing reported net profit after tax by $75 million in 1H26. This notable item underscores the tangible near-term costs of strategic portfolio reshaping, even as the bank looks to streamline its operations.
Westpac’s recent quarterly updates have highlighted the strategic overhaul underpinning its financial performance, including the RAMS sale and transformation programs. The bank’s ability to maintain strong capital and credit quality while executing these initiatives was evident in its solid 1H26 operating metrics and strengthened CET1 capital ratio in the second quarter, building on the foundation reported earlier in the year steady net profit and capital quality.
Currency and Market Volatility Weigh on Results
Westpac also flagged the impact of foreign currency translation losses stemming from a 6% depreciation in the New Zealand dollar, which affected both revenues and costs. Coupled with increased market volatility linked to geopolitical uncertainty, these factors contributed to fluctuations in the bank’s Treasury and Markets income.
While these pressures are not unexpected, they highlight the challenging environment in which Westpac is operating, balancing support for customers with disciplined financial management.
Bottom Line?
Westpac’s ability to maintain growth and capital strength amid geopolitical and economic headwinds will be critical as the RAMS sale finalises and credit risks evolve.
Questions in the middle?
- How will Westpac’s increased credit provisions affect its full-year profitability?
- What impact will the RAMS mortgage portfolio sale have on the bank’s future earnings and capital position?
- Can Westpac sustain stable margins if interest rate volatility and currency fluctuations persist?